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I've done some research on how to do Norbert's Gambit and eventually pulled the trigger earlier this week, after a lot of nervous consideration, mostly because there are lots of little steps in the process that are each somewhat confusing. So I wanted to post detailed instructions here for anybody else looking to execute the gambit on RBC DI -- not sure if all/most/some is transferrable to other discount brokerages.

Background: I recently sold out of my 2%+ MER mutual funds and transferred all the CDN$ to DI to do index investing. I decided to allocate 25% of my holdings to US equities (VTI), which translates to CDN$14,444, and didn't want to get dinged on the DI FX rates. So I decided to try Norbert's Gambit as follows:

Step 1: Buy DLR, which is traded on TSX. Got a quote, hit "Buy" then selected my RSP - CAD account. There is a field for "Market", is should be "CDN". The "Ask" was $10.51, I put in a Limit order at $10.52 for 1373, which is the most shares I could afford if it indeed cost $10.52 per share. Turns out it did, used all my cash for 1373 shares or DLR.

Step 2: Wait. Part of the order was filled immediately, but most of the trade didn't clear until the next day.

Step 3: Once the trade cleared, I got a quote for DLR.U, hit "Sell" and then selected my RSP - USD account. Now for me this was the tricky part: the "Market" has to remain "CDN", because although DLR.U is in USD, it is traded on the TSX. That threw me off. Anyway, the "Bid" was $9.94 so I put in a Limit order for 1373 shares, the same number of DLR shares I bought, at $9.93. When I hit "Continue", a warnging screen popped up telling me to beware that FX fees may apply to my trade, and that I need to confirm. I read about this beforehand and was prepared, you can confirm and no FX charges will be applied. I confirmed, turns out the whole order was filled a $9.94, so I got USD$13,648.

Step 4: Calculate my savings vs. my old method of converting with ING Direct, which has the best posted spread I could find. I would have gotten USD$13,386 with ING, so after my $20 in trade commissions with RBC DI, I saved $260.

Step 5: Drink a healthy pour of Johnnie Walker Gold to celebrate the feeling of being (somewhat) savvy.

Hope this is helpful for any other newbies giving it a go. If I missed anything or mis-spoke, let me know please.

RG
 

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sounds perfect.

fun, isn't it?

you can also do this easily & perfectly in your cash or margin account at roybank. Their platform will support instant online gambit trading.

so also will BMO platform, so also will TDDI RRSP & TFSA platforms. However, at TD, cash & margin accounts require that the sell side be placed by a licensed rep. TD will charge an agent-handled commission.

all other broker platforms, to the best of our knowledge here on cmf forum, require licensed rep intervention to execute the sell side of a gambit trade.

next stage for lempera: you don't have to stick to the DLRs. Instant gambit trades are so easy to accomplish at roybank that you can use an actual stock as a carrier. TD & RY are good carrier stocks. Be sure to pick a quiet day. No news, no earnings announcements coming up, no dividend X dates looming, no clouds on the horizon.

an actual carrier stock is cheaper to gambit than the DLRs, which - understandably enough - have a profitable spread built into em for their vendor, Horizons betapro.

furthermore, reverse gambits from USD to CAD don't work so well with the DLRs. That's because only DLR.U is pegged. Anyone using the DLRs to exchange from USD to CAD & knowing he has to wait several days for settlement & journalling is exposing himself to currency fluctuation during the days of the wait time.
 

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To perform NG at BMO, does one require a margin account, or would a cash account suffice?

During the three day settlement period, is interest charged on the short side at BMO?
 

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doc i've only ever done it in a margin account but they say a cash account will work fine.

you would need to confirm that your account does have a US side that is up & running.

also - il va sans dire - in a cash account you would need enough cash dollars to buy the security in full in the original currency, since there won't be any margin to assist with payment.

be sure to sell in the new currency, the currency into which you wish to move.

the account will look funny for a couple of days after settlement. For about 5 days altogether. Eventually, after about 5 days, everything will flatten, all shares will be gone, & investor will end up with his lovely new currency at no FX fee whatsoever.

there's no margin interest on gambit shares. The investor always buys them first, right? even if it's a split second before he goes to sell them in the opposite currency.
 

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To perform NG ... is interest charged on the short side at BMO?
except a gambit is not a short. Brokers don't seem to want to allow a gambit done backwards, ie short first, then buy to cover. I suppose the reason is that they don't want to reduce the allocations of shortable shares which they are able to loan to clients who are truly shorting - as opposed to gambitters who are just passing through.

also i imagine the brokers don't want gambit shares to go on their overnight short reports to the exchanges.

for a while i thought gambit shares were actually naked shorts, at least on some broker systems. But then a friend who's worked 22 years in the industry told me that, definitively, gambit sells are *not* naked shorts.

ie gambits are not true shorts, they're not naked shorts, i guess they're clothed somehow, perhaps with small loincloth of knitted industrial zippers ...
 

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I ask because I believe I was charged interest at TDW when NGing on their platform. This was a couple of years ago. But this was broker unassisted and then journalled the flatten the positions after settlement.
 

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I ask because I believe I was charged interest at TDW when NGing on their platform. This was a couple of years ago.
yes, i remember

that was because you didn't do it right. That wasn't a norbert's gambit, it was just an ordinary short followed by a buy to cover. Of course, if you used margin on your short, then there was interest to pay. At the time, you insisted on doing it that way ... remember :peach:

(pie may be dumb but has a good memory)

this is exactly why i posted the above message explaining why brokers do *not* want clients to gambit with a true short first. Yea it'll work, but they absolutely do not like it.

the bmo arbitrage platform is speedy & reliable. So also is TD rrsp & tfsa. Reportedly, so also is roybank. On these platforms, it's buy first, then rush to sell. Easy as pie.

all other accounts & brokers have certain complications on a gambit sell side. They can do, but often the client has to phone & pay a higher commish.
 
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